GIFT   OF 


THE  RURAL  CREDIT  SYSTEM  NEEDED 
IN  WESTERN  DEVELOPMENT 


BY 


ELWOOD  MEAD 


[Reprinted  from  the  UNIVERSITY  OF  CALIFORNIA  CHRONICLE,  Vol.  XVIII.  No.  1] 


THE  RURAL  CREDIT  SYSTEM  NEEDED  IN 
WESTERN  DEVELOPMENT* 


ELWOOD  MEAD 


One  of  the  important  questions  confronting  this  country 
is  the  creation  of  a  land  policy  suited  to  conditions  which 
have  arisen  in  the  last  quarter  of  a  century.  Until  recently 
it  was  our  boast  that  any  man  who  had  industry  and  thrift 
could  enjoy  landed  independence.  That  statement  needs 
now  to  be  qualified.  The  increase  in  the  number  of  farm 
renters  compared  with  the  number  of  farm  owners;  the 
colonizing  of  rural  communities  with  foreign-born  immi- 
grants who  can  and  do  pay  higher  rents  because  they  are 
content  with  a  lower  standard  of  living,  are  significant 
indications  of  the  dangers  to  rural  life  which  need  to  be 
removed. 

These  conditions  are  due  largely  to  the  fact  that  the 
rural  institutions  of  this  country,  have  failed  to  keep  pace 
with  the  changes  in  our  industrial  and  social  life.  In  other 
countries  where  the  problems  of  settlement  are  older  and 
more  acute,  the  subject  has  had  greater  attention  than  here, 
and  methods  have  been  adopted  which  have  done  much 
towards  their  solution.  In  every  case  the  principal  agency 
is  a  system  of  rural  credits  designed  to  enable  men  of  small 
capital  to  buy  and  improve  farms  and  thus  become  owners 
instead  of  tenants. 


*  Address  delivered  before  the  National  Conference  on  Market- 
ing and  Eural  Credits,  Chicago,  111.,  November  30,  1915. 


327577 


The  Western  third  of  the  United  States  presents  the 
most  inviting  field  in  this  country  for  the  establishment 
of  such  a  system  and  has  greatest  need  for  it.  In  this 
section  millions  of  acres  of  irrigable  land  capable  of  sup- 
porting a  dense  population  are  either  unpeopled  and  await- 
ing settlement  or  the  settlers  are  having  to  undergo  hard- 
ships, and  are  menaced  with  failure  from  causes  that  are 
removable  and  should  be  removed.  High  interest  rates, 
the  inability  to  secure  money  to  make  necessary  improve- 
ments on  the  land  and  the  lack  of  direction  and  oversight 
of  unskilled  beginners,  cause  so  many  to  fail  before  they 
get  started  that  it  is  becoming  an  economic  wrong  and  is 
retarding  the  progress  of  Western  agriculture,  and  all 
related  interests. 

Irrigation  works  which  have  cost  in  the  aggregate  nearly 
$200,000,000  are  financially  unsuccessful  because  of  delay 
in  settling  the  land  or  because  settlers  are  too  poor  to  pay 
water  charges.  The  nature  of  the  obstacles  that  confront 
development  and  the  hardships  and  losses  of  settlers  in 
recent  years  are  not  understood  by  the  country  as  a  whole. 
The  economic  changes  which  have  taken  place  in  the  last 
fifteen  or  twenty  years  and  the  need  of  financial  adjust- 
ments to  conform  to  those  changes  are  matters  about  which 
a  wider  knowledge  is  desirable. 

ECONOMIC  CHANGES  IN  RECENT  YEARS 
Up  to  about  a  quarter  of  a  century  ago  there  was  little 
need  of  capital  or  skill  in  agriculture  to  enable  men  to 
secure  homes  in  the  West.  Land  was  obtained  as  a  gift 
from  the  Government.  There  were  large  areas  which  did 
not  require  irrigation,  and  where  irrigation  was  necessary, 
the  water  could  be  taken  by  cheap  ditches  out  of  the  mount- 
ain streams.  Usually  these  consisted  of  nothing  but  a  small 
furrow  built  by  the  settler's  own  labor.  Even  where  they 
were  built  by  companies  it  was  seldom  that  water  rights 
cost  over  $10  per  acre.  Some  of  what  is  now  the  highest 


3 


priced  farm  land  in  the  West  was  obtained  from  the  Govern- 
ment for  nothing,  or  purchased  from  railroad  land  grants 
for  from  $2  to  $5  per  acre.  The  ditches  which  watered 
these  lands  cost  only  from  $3  to  $10  per  acre,  hence  with 
free  land  that  did  not  need  irrigation,  or  cheap  water 
rights  for  that  which  did,  the  man  with  $1000  or  $2000 
had  ample  capital  with  which  to  acquire  and  improve  a 
160  acre  farm.  Or  if  he  had  no  capital  at  all,  it  was  pos- 
sible through  industry  and  economy  to  meet  all  the  expenses 
of  development. 

EARLY  OPPORTUNITIES  ARE  GONE 
These  natural  opportunities  have,  however,  disappeared. 
The  fertile  lands  which  did  not  require  irrigation  are  all 
in  private  ownership.  The  cut-over  forest  lands  or  the  arid 
lands  which  have  to  be  irrigated,  both  require  a  large 
expenditure  to  make  them  productive.  The  opportunities 
for  cheap  and  easy  irrigation  have  all  been  absorbed.  To 
obtain  water  for  new  areas  it  is  necessary  to  control  great 
rivers  and  build  costly  reservoirs  to  conserve  the  flood  water. 
The  railroad  lands  that  could  once  be  obtained  for  from 
$2  to  $5  an  acre  have  passed  into  private  ownership.  In 
one  way  and  another  some  of  the  best  undeveloped  areas 
have  become  part  of  great  landed  estates.  The  actual  con- 
struction cost  of  irrigation  works  built  in  the  last  five  years 
varies  from  $30  to  $100  an  acre.  Unimproved  privately 
owned  land  under  those  works  sells  from  $15  to  $100  an 
acre. 

Few  settlers  today  have  access  to  free  range  or  free 
timber.  Often  they  have  to  pay  high  prices  for  land,  and 
always  high  prices  for  water  as  compared  with  fifteen  years 
ago.  They  have  therefore  one  burden  which  the  pioneer 
settler  did  not  have  to  carry;  that  is,  interest  charges  on 
the  greater  expenses  of  development.  This  makes  it  im- 
possible to  prolong  the  period  in  which  the  land  is  being 
cleared,  leveled,  or  water  provided,  as  was  often  done  by 
the  earlier  settlers. 


GREATER  PRELIMINARY  OUTLAY  REQUIRED 

There  are  few  places  in  the  West  where  improved  farms 
can  be  purchased  or  raw  public  land  made  habitable  and 
productive  for  less  than  $100  per  acre.  The  houses,  fences, 
implements,  livestock,  and,  in  the  case  of  arid  lands,  the 
water  rights  needed  to  make  these  farms  going  concerns, 
involve  an  expenditure  greater  than  most  home-seekers  can 
meet.  Yet  the  largest  part  of  this  outlay  should  be  made 
immediately,  in  order  to  meet  living  expenses  and  prevent 
interest  on  debts  falling  into  arrears.  If  these  improve- 
ments can  be  made  promptly,  and  especially  if  the  settler 
has  time  enough  in  which  to  bring  the  land  into  full  pro- 
duction, and  earn  the  money  out  of  the  land,  he  nearly 
always  succeeds.  The  profits  of  intense  culture  are  great, 
and  in  some  directions  are  continuous  and  reliable. 

The  great  need  of  successful  development  is  therefore 
that  the  settler  may  either  have  capital  enough  of  his  own, 
or  be  able  to  borrow  money  on  a  very  long  time  at  a  low 
rate  of  interest,  to  enable  him  to,  without  delay,  improve, 
equip  and  stock  his  farm  and  then  cultivate  it  in  accordance 
with  scientific  methods. 


COST  OP  DEVELOPMENT 

Very  few  settlers  and  still  fewer  of  the  public  under- 
stand the  cost  of  improving  raw  land,  and  of  equipping 
farms  for  scientific  agriculture.  The  Division  of  Rural  Insti- 
tutions of  the  University  of  California  has  recently  been 
making  a  first-hand  investigation  of  this  subject,  and  of  the 
plight  in  which  a  settler  finds  himself  when  he  makes  an 
attempt  to  acquire  a  home  without  adequate  capital,  and  has 
to  depend  on  existing  credit  facilities  for  money  needed 
before  he  has  his  land  ready  for  cultivation.  The  results 
already  obtained  show  that  many  settlers  with  from 
$1000  to  $3000  find  themselves  in  debt  and  without  credit 


before  they  have  their  land  ready  for  irrigation  and  are 
unable  to  go  on  because  the  commercial  banks  cannot  lend 
money  except  on  revenue-producing  property,  and  no  reli- 
able land  mortgage  company  will  loan  except  on  first- 
mortgage  security.  Some  settlers  are  able  to  obtain  money 
on  their  personal  credit,  but  in  these  cases  the  loans  are 
usually  for  a  short  time  with  commissions  for  obtaining 
the  loan  and  for  its  renewal,  and  with  interest  rates  varying 
from  8  to  12  per  cent.  The  settler  has  therefore  to  pay 
interest  rates  above  the  profits  of  agriculture  and  has 
always  before  him  the  ever  impending  menace  of  a  mort- 
gage foreclosure. 


NEED  FOR  CREDIT  AND  ORGANIZED  DIRECTION  IN  SETTLEMENT 
The  absence  of  adequate  credit  facilities  and  of  organ- 
ized oversight  of  settlement  is  an  economic  wrong  to  the 
settler  in  many  ways.  He  needs  livestock  to  consume  his 
fodder  crops,  and  if  he  could  purchase  these  he  could  often 
make  money  where  he  is  now  losing  it.  Scores  of  settlers 
are  attempting  to  cultivate  crops  for  which  the  land  and 
climate  are  not  suited  and  who  lose  (through  mistakes  that 
intelligent  oversight  would  avert)  the  money  that  would 
pull  them  through  the  critical  period. 

No  one  can  visit  a  developing  district  without  realizing 
the  waste  involved  in  leaving  each  individual  settler  to 
carry  out  his  improvements  without  organization  or  expert 
direction.  No  beginner  can  level  land  properly,  no  individ- 
ual settler  can  afford  to  buy  the  proper  implements,  and 
as  a  result  each  one  of  them  wastes  time,  labor  and  money. 
Leaving  each  individual  settler  to  buy  the  material  for  his 
house  and  arrange  for  its  construction  causes  him  to  lose 
time  that  ought  to  be  spent  on  cultivation,  makes  the  cost 
more,  and  the  result  far  less  satisfactory  than  if  this  were 
done  under  competent  practical  direction  in  accordance 
with  a  comprehensive  plan. 


CAPITAL  NEEDED  FOR  WORKING  EXPENSES 
In  one  district  visited  recently  the  fields  were  dotted 
with  alfalfa  stacks.  It  was  a  picture  of  seeming  agricul- 
tural prosperity;  yet  many  settlers  in  the  district  were 
1 '  dead  broke ' '  and  in  debt.  They  had  spent  all  their  money 
preparing  to  grow  alfalfa  and  there  was  no  market  for 
hay.  If  they  sold  hay  they  had  to  sell  at  less  than  cost. 
Fat  cattle  and  fat  sheep  brought  high  prices,  and  the 
obvious  way  of  marketing  their  alfalfa  was  to  feed  it  to 
cattle  and  sheep.  But,  as  one  settler  expressed  it,  there 
was  no  use  to  suggest  that,  because  they  had  neither  money 
nor  credit  with  which  to  buy  a  suit  of  clothes.  One  settler 
was  financed  by  a  local  banker  in  buying  ten  dairy  cows. 
For  the  risk  the  banker  charged  him  $10  a  cow  above  the 
purchase  price.  He  required  the  settler  to  make  payment 
by  giving  half  of  the  return  from  each  cow.  The  settler 
paid  a  lawyer  $10  for  preparing  a  chattel  mortgage,  and 
$4  for  recording  it.  Hence,  to  begin  with,  he  was  loaded 
with  $11.50  a  cow  above  the  cost  price.  Some  of  these 
cows  were  unprofitable.  Every  good  dairyman  has  to 
cull  his  herd ;  he  wanted  to  sell  the  poor  ones  and  buy  good 
ones,  but  the  banker  insisted  on  a  new  chattel  mortgage 
ever}'  time  this  exchange  was  made.  In  six  month's  time 
it  had  cost  him  more  in  legal  fees,  lost  time  in  consulting 
the  banker,  and  in  recording  new  mortgages  than  the 
returns  would  justify,  and  he  gave  up  the  herd. 

One  settler  who  had  a  title  to  320  acres  of  government 
land  needed  $10,000  to  level  it  for  irrigation.  To  obtain 
the  loan  of  that  sum  he  paid  a  commission  to  the  loan  agent 
of  $500.  He  agreed  to  pay  10  per  cent  interest,  with  six 
months  interest  in  advance;  that  was  another  $500.  He 
was  required  to  insure  his  life  for  10,000,  the  policy  being 
drawn  in  favor  of  the  lender ;  that  cost  $200.  He  actually 
received  of  his  $10,000  loan  $8800,  and  for  that  he  had  to 
pay  each  year  $1200.  Agriculture  will  not  stand  interest 
charges  of  that  character.  These  are  not  isolated  instances. 


The  investigation  referred  to  has  shown  scores  of  the  same 
character,  leaving  no  question  that  the  high  interest  rates 
are  a  burden  on  the  beginner  too  heavy  for  him  to  success- 
fully overcome. 

In  one  district  the  average  farm  mortgage  indebtedness 
over  the  whole  area  of  nearly  200,000  acres  is  $50  an  acre, 
and  the  chattel  mortgage  indebtedness  on  the  same  area  is 
about  $15  an  acre.  The  interest  rate,  with  commissions, 
will  average  somewhere  between  10  and  12  per  cent,  and  to 
this  has  to  be  added  heavy  payments  on  the  principal. 

LOWER  INTEREST  RATES  URGENTLY  NEEDED 
If,  instead  of  having  to  pay  10  per  cent  interest,  these 
settlers  could  obtain  money  at  5  per  cent  it  would  mean 
an  annual  interest  saving  to  the  farmers  of  this  district  of 
over  half  a  million  dollars,  and  to  some  settlers  this  interest 
saving  would  mean  over  $5  an  acre  a  year.  Yet  5  per  cent 
interest  is  about  the  highest  rate  of  interest  paid  in  any 
country  having  an  effective  rural  credit  system.  If,  instead 
of  having  to  pay  off  the  debt  in  five  years,  they  could  have 
amortized  payments  extending  over  thirty  years,  it  would 
mean  that  the  average  payment  on  the  principal  in  this 
district  would  drop  from  $10  an  acre  a  year  to  75  cents  an 
acre  a  year.  This  change  would  mean  a  saving  to  the 
settlers  of  this  district  during  the  early  trying  years  of 
over  a  million  and  a  half  dollars  a  year;  it  would  mean 
the  difference  between  success  and  failure,  between  con- 
fidence in  the  future  and  harrassing  anxiety.  It  would 
mean  good  food,  good  clothing  and  comfortable  living  for 
hundreds  of  settlers  and  their  families  which  are  lacking 
today  because  we  have  a  wholly  unscientific  credit  system. 

THE  RURAL  CREDIT  SYSTEM  OF  AUSTRALIA 

A  few  years  ago  conditions  in  Australia  irrigated  areas 

were  almost  a  direct  counterpart  of  those  now  confronting 

irrigated  agriculture  in  this  country.     Costly  irrigation 

works  had  been  built,  but  the  water  was  not  being  used. 


The  number  of  farmers  on  irrigated  areas  was  decreasing. 
Men  who  were  without  capital  could  not  buy  the  land,  and 
those  with  capital  did  not  care  to.  Irrigation  works  were 
unprofitable  because  there  were  not  enough  people  on  the 
land  to  cultivate  it  as  successful  irrigation  requires. 

In  order  to  change  these  conditions  the  Government 
decided  to  inaugurate  a  new  system  of  land  settlement,  in 
which  the  social  and  economic  benefits  to  the  public  rather 
than  the  profits  from  land  sales  would  be  the  governing 
considerations.  It  was  decided  to  buy  privately  owned 
land  held  in  large  tracts,  and  to  subdivide  and  sell  them  on 
such  conditions  as  would  enable  men  of  small  capital  to 
become  farm  owners.  Investigation  was  made  to  ascertain 
the  number  of  acres  needed  to  make  a  living  area,  and 
the  amount  of  money  required  to  prepare  these  areas  for 
irrigation  and  properly  equip  them  for  intense  cultivation. 
It  was  realized  that  few  settlers  had  capital  enough  to  buy 
and  improve  these  farms  unaided,  and  that  a  rural  credit 
system  similar  to  those  of  Ireland,  Denmark  and  Italy, 
would  have  to  be  made  a  part  of  the  plan. 

A  study  of  the  land  settlement  laws  of  a  number  of 
European  countries  and  New  Zealand  was  made  before 
the  policy  now  in  operation  was  put  into  final  form.  The 
scheme  of  subdivision  finally  adopted  provided  for  farm 
units  varying  in  size  from  2  acres  to  200  acres.  The  two 
acre  units  were  for  the  farm  laborers.  Such  an  area  would 
enable  a  farm  laborer 's  family  to  keep  a  cow,  some  pigs  and 
poultry,  and  to  grow  most  of  the  fruit  and  vegetables  con- 
sumed. Such  a  farm  gave  the  farm  laborer  landed  inde- 
pendence, tied  his  interest  to  one  locality  and  gave  to  the 
district  a  reserve  of  labor  in  the  children  of  these  families 
for  fruit  picking  and  grain  harvesting  seasons.  No  feature 
of  the  system  has  proven  of  greater  value  than  the  two- 
acre  farm  laborer's  block.  The  number  of  these  originally 
provided  for  in  each  district  has  subsequently  been  in- 
creased, as  the  lands  of  the  district  were  brought  under 
intense  culture. 


Investigations  and  experience  both  show  that  the  success 
of  the  settler  with  small  capital  quite  largely  depends  upon 
his  being  able  to  obtain  a  living  income  from  his  farm 
within  a  year,  and  to  get  the  whole  area  into  cultivation 
inside  of  two  years.  The  saving  of  time  in  the  preliminary 
development  became  therefore  an  essential  factor.  In  order 
to  do  this  the  State  decided  to  give  organized  and  compre- 
hensive aid  to  settlers  in  building  their  houses  and  in  level- 
ing the  land  for  irrigation.  It  could  build  houses  cheaper 
than  the  settlers  could,  because  it  could  buy  material  in 
large  quantities  and  pay  cash  for  it,  and  could  give  skilled 
oversight  in  the  preparation  of  plans  and  in  watching  the 
work  of  contractors.  The  outcome  was  that  this  plan  not 
only  saved  the  settler  money  but  it  protected  the  district 
from  the  unsightly  makeshifts  which  the  settlers,  if  left 
alone,  would  have  perpetrated.  A  district  with  all  the 
houses  properly  built,  newly  painted  and  provided  with 
those  things  that  go  for  decency  and  comfort,  has  a  great 
social  influence.  It  awakens  pride  and  stimulates  efforts 
in  the  whole  community. 

At  first  only  ten  and  fifteen  acres,  or  one  quarter  of  each 
farm,  was  leveled  for  irrigation,  it  being  believed  that  with 
this  done,  the  settlers  could  complete  the  work.  But  ex- 
perience showed  that  better  results  would  come  from  level- 
ing and  seeding  about  three-fourths  of  every  farm  at  the 
outset,  and  later  on  large  areas  were  leveled  and  seeded  in 
advance  of  settlement.  One  result  of  this  was  that  some 
settlers  going  on  these  ready-made  farms  were  able  to  obtain 
a  living  income  from  dairying  within  thirty  days  after 
their  arrival.  At  first  each  settler  was  left  to  buy  his  own 
tools  and  livestock  without  any  suggestions  from  the  State, 
but  when  it  was  found  that  they  were  being  victimized  be- 
cause of  their  inexperience,  the  State  placed  at  their  service 
an  expert  buyer  of  dairy  cattle,  who  by  getting  in  touch 
with  the  farms  in  widely  scattered  dairying  districts  was 
able  to  protect  them  from  the  purchase  of  worthless  animals 
and  to  supply  them  with  good  stock  at  about  one-half  what 


10 

they  would  have  had  to  pay  if  each  individual  had  been 
left  to  take  care  of  himself. 

IMPORTANCE  OP  PRACTICAL  ADVICE  AND  DIRECTION 
TO  BEGINNERS 

The  most  important  feature  of  the  system  was,  however, 
the  placing  in  each  district  of  a  farm  inspector  or  adviser. 
He  was  there  to  be  consulted  by  the  settlers  whenever  they 
desired,  but  it  was  also  his  business  to  travel  continually 
through  the  district  observing  the  habits  and  methods  of 
the  beginners,  to  correct  their  mistakes  when  seen,  and 
where  they  refused  to  adopt  proper  methods  or  showed  lack 
of  industry  and  persistence  to  notify  the  authorities  in 
charge,  and  having  this  warning,  they  were  careful  about 
making  loans  for  improvements  or  extension  of  time  on 
payments.  The  influence  which  this  exerted  on  the  methods 
of  the  farmer  and  on  the  agriculture  of  the  district  was 
immediate  and  important. 

All  of  the  estates  purchased  were  bought  without  any 
compulsion.  The  land  desired  by  the  State  was  appraised 
by  three  impartial  values  and  as  a  rule  the  average  of 
these  values  was  offered.  There  were  few  instances  in 
which  it  was  not  accepted.  After  subdivision  each  of  the 
farm  units  was  separately  valued  so  as  to  repay,  when  sold, 
the  purchase  price  with  about  15  per  cent  added  to  meet 
the  expense  of  subdivision  of  the  land  and  interest  on  the 
money  invested  between  the  time  of  purchase  by  the  State 
and  sale  to  settlers.  The  lands  were  disposed  of  to  settlers 
on  the  payment  of  3  per  cent  of  the  cost,  the  remainder 
being  paid  in  31^  years  with  interest  at  4%  per  cent  and 
amortized  payments  at  1%  per  cent,  making  a  total  of  pay- 
ment for  principal  and  interest  each  year  6  per  cent.  Each 
settler  was  required  to  deposit  about  20  per  cent  of  the  cost 
of  leveling  the  land  and  about  40  per  cent  of  the  cost  of 
houses  and  other  buildings,  the  State  furnishing  the  re- 
mainder and  the  settlers  repaying  these  advances  in  from 


11 

20  to  30  years  with  interest  at  5  per  cent.  Where  the 
settler  made  his  own  improvements  the  State  could  loan 
him  up  to  60  per  cent  of  the  value.  Experience  has  shown 
that  with  this  aid  nearly  all  the  settlers  succeed.  Without 
it  fully  two-thirds  of  them  would  have  failed.  The  finan- 
cial returns  have  been  entirely  satisfactory.  It  has  brought 
important  benefits  without  any  cost  to  the  general  taxpayer. 

How  MONEY  Is   OBTAINED 

The  money  for  the  purchase  of  land  and  making  loans 
to  settlers  is  obtained  in  the  Australian  States  as  a  rule 
from  the  State  Savings  Bank.  In  two  States  it  is  provided 
by  the  Commonwealth  Postal  Savings  Bank,  while  in  New 
Zealand  the  money  comes  from  the  sale  of  bonds  in  London. 
In  all  the  States  about  4  per  cent  interest  is  paid  on  the 
money  borrowed,  and  as  this  is  loaned  to  settlers  at  from 
4%  to  5  per  cent,  there  is  from  %  to  1  per  cent  profit,  which 
is  expected  to  meet  the  expenses  of  management  and  the 
loss  incurred  where  settlers  fail  to  meet  their  obligations. 
A  full  report  of  the  financial  operation  of  the  different 
State  systems  is  given  in  the  recent  report  of  the  Commis- 
sion of  British  Columbia.  In  all  cases  these  systems  have 
been  self-supporting. 

CAPITAL  REQUIRED  BY  SETTLERS 

There  was  much  difference  of  opinion  at  the  outset 
regarding  the  capital  which  a  settler  should  have.  It  was 
at  first  fixed  at  $1000.  Since  then  it  has  been  made  more 
flexible.  The  capital  now  required  depends  on  the  size  of 
the  farm  the  settler  purchases  and  something  on  his  personal 
qualifications.  No  one  is  allowed  to  buy  land  who  is  already 
a  land  owner,  and  actual  settlement  is  insisted  upon.  Title 
to  the  land  does  not  pass  for  twelve  years,  but  the  settler 
can  sell  his  interest  at  any  time  before  that  provided  the 
buyer  conforms  to  the  restrictions  governing  the  original 
settlement.  The  maximum  value  of  land  purchased  by  one 


12 

» 
settler  is  $12,500,   and  the  maximum  amount  which  the 

State  can  advance  to  one  settler  is  $2500.  On  units  for 
farm  laborers,  or  on  areas  of  ten  acres  or  less,  the  capital 
of  the  applicant  is  not  considered.  He  is  only  required  to 
make  the  payments  on  the  land  and  the  part  payment  on 
the  house  and  other  improvements.  On  small  units  settlers 
can  meet  land  payments  from  wages,  but  when  the  farms 
have  more  than  20  acres  the  income  must  be  far  more 
than  the  settler  can  earn  in  wages  to  meet  the  interest  and 
other  expenses.  Whoever  attempted  to  purchase  farms  of 
more  than  20  acres  should  therefore  have  sufficient  capital 
to  make  his  initial  payment  on  that  land  and  at  least  one 
third  of  the  cost  of  its  improvement. 

There  have  been  instances  of  settlers  borrowing  the 
money  to  make  the  necessary  land  payment,  who  have  met 
promptly  all  their  obligations  to  the  State,  but  as  a  rule 
even  the  best  of  settlers  need  all  that  the  State  can  expend 
in  order  to  provide  for  the  development  expenditures  of 
the  first  three  years. 

It  is  the  belief  of  all  who  have  made  a  first-hand  study 
of  conditions  in  the  western  third  of  the  United  States  that 
unless  some  such  system  is  introduced  here,  future  settle- 
ment should  be  restricted  to  men  of  considerable  capital, 
say  $3000  each,  for  the  settlement  of  public  land  and  $5000 
each  for  the  settlement  of  privately  owned  land. 

STOPS  DRIFT  TO  CITY 

The  adoption  of  this  system  by  this  Australian  State 
has  stopped  the  drift  of  the  young  men  from  the  country 
and  attracted  to  the  land  scores  of  young  men  from  the 
cities.  It  has  created  opportunities  for  hundreds  of  poor 
men  who  without  it  would  have  never  been  land  owners. 
Under  its  operations  more  than  4000  farmers,  all  starving 
with  limited  capital,  now  live  in  their  own  houses  and  are 
landed  proprietors.  It  has  given  the  people  better  houses 
at  less  cost,  better  live  stock,  and  better  tools,  than  they 


13 


could  have  obtained  without  financial  aid  and  the  expert 
knowledge  and  advice  that  went  with  the  system.  How  it- 
is  regarded  where  it  is  in  operation  is  set  forth  in  the  last 
budget  speech  of  the  premier  of  Victoria: 

"The  final  success  of  this  investment  depends  upon  the 
returns  which  can  be  obtained,  and  in  this  respect  the 
State  stands  in  an  entirely  different  position  from  that 
occupied  five  years  ago  when  it  made  intense  culture  com- 
bined with  closer  settlement  the  basis  of  future  develop- 
ment. This  was  an  experiment,  the  success  of  which  was 
doubted  by  many ;  now  it  is  a  demonstrated  success.  Over 
large  areas  in  widely  separated  districts  more  than  ten  times 
as  many  families  are  settled  in  comfortable  homes,  under 
attractive  social  conditions  as  were  there  five  years  ago, 
and  they  are  obtaining  returns  from  their  holdings  that 
even  less  than  five  years  ago  were  regarded  as  impossible. 
The  demonstration  that  families  can  be  fully  employed  and 
obtain  comfortable  living  on  from  20  to  40  acres  of  irrigable 
land  not  only  ensures  the  financial  success  of  our  investment 
in  irrigation  works,  but  gives  a  new  conception  of  the  ulti- 
mate population  which  this  state  will  support  and  the 
agricultural  wealth  it  will  produce. 

"Notwithstanding  the  fact  that  many  of  the  settlers 
were  inexperienced  and  lacked  capital,  the  small  irrigated 
farm  is  paying  well  and  doing  this  in  districts  having 
relatively  high  water  charges/' 

OBJECTIONS  TO  STATE  ACTION  NOT  WELL  FOUNDED 
There  is  some  opposition  in  this  country  to  a  land  settle- 
ment system  of  this  character,  on  the  ground  that  the 
State  is  incompetent  to  carry  it  out,  and  that  all  such 
matters  should  be  left  to  private  enterprise.  There  is  also 
much  meaningless  talk  about  what  can  be  accomplished 
through  co-operation.  But  how  the  co-operation  of  a  body 
of  men  who  lack  both  money  and  credit  is  to  provide  these 
essentials  has  never  been  explained.  A  conclusive  answer 


14 

> 

to  all  objections  is  furnished,  however,  by  the  success  of  the 
rural  credit  system  financed  by  the  State  in  countries  where 
the  conditions  and  needs  are  like  ours,  and  equally  con- 
clusive evidence  that  no  other  system  will  answer,  by  the 
absence  of  a  single  successful  system  of  land  settlement, 
through  the  aid  of  either  co-operation  or  corporate  rural 
credit,  where  the  conditions  are  like  ours. 

Germany,  with  that  thoroughness  and  business  sagacity 
so  characteristic  of  the  nation,  did  not  attempt  to  employ 
the  Landschaft  or  any  other  co-operative  system  in  aiding 
German  farmers  to  become  landowners  in  Poland  or  South- 
west Africa.  Instead,  it  adopted  direct  State  action,  iden- 
tical in  its  working  features  with  the  system  of  New  Zealand 
and  the  Australian  States. 


STATE  TO  PROVIDE 

The  State  is  the  proper  authority  to  provide  the  money. 
It  is  the  only  authority  in  a  developing  district  where  all 
men  are  borrowers,  where  values  are  being  created,  where 
the  people  are  new  to  each  other,  and  where  they  are 
strongly  inclined  to  be  individualistic,  that  can  provide 
cheap  money.  And  the  State  has  reasons  for  doing  this 
that  do  not  prevail  with  either  private  or  corporate  enter- 
prises. The  basis  of  State  action  is  the  general  welfare, 
the  creation  of  better  conditions  in  rural  life,  the  bringing 
into  cultivation  of  unoccupied  land,  increase  in  taxable 
wealth  and  trade  and  commerce.  All  these  things  are  gains 
for  the  public,  of  which  the  State  is  the  representative. 
The  Federal  Government  has  about  $100,000,000  invested 
in  irrigation  works.  The  financial  return  from  these  works 
and  the  welfare  of  the  settlers  living  under  them  can  in 
no  way  be  so  effectively  helped  as  through  the  establishment 
of  a  State  or  Government  Rural  Credit  system  like  that 
of  Australia.  The  money  for  these  loans  in  Australia 
comes  almost  entirely  from  savings  banks.  If  the  Federal 
Postal  Savings  Bank  system  in  this  country  were  changed 


15 


so  as  to  make  the  interest  rate  3%  per  cent  and  the  limit 
of  deposits  $2000,  there  would  be  an  ample  fund  in  this 
country  with  which  to  carry  out  this  work. 


EXPERT  ADVISERS 

In  addition,  the  State  has  already  in  its  experiment 
stations  and  the  officers  appointed  under  the  Smith-Lever 
bill  a  body  of  expert  advisers  familiar  with  local  conditions. 
It  would  only  need  an  increase  in  their  number  to  do  all 
that  is  being  done  by  the  advisers  of  the  rural  credit  system 
of  Australia,  and  with  the  power  that  this  system  would 
give  them,  their  influence  would  be  far  more  potent  than 
it  now  is,  and  the  progress  of  agriculture  correspondingly 
accelerated. 

NOT  AN  EXPERIMENT 

If  we  adopt  this  system  we  will  have  the  experience  of 
a  number  of  countries  to  guide  us.  We  do  not  have  to 
break  any  new  trails.  It  will  be  in  no  sense  an  experiment. 
It  will  be  entrusting  the  creation  of  new  communities  and 
the  shaping  of  their  social  and  industrial  life  to  the  only 
authority  which  should  exercise  that  power,  and  the  only 
one  that  has  the  resources,  the  continuity  of  existence,  and 
the  disinterestedness  needed  to  insure  the  results  desired. 
There  need  be  no  fear  of  the  ability  of  a  State  to  render 
a  direct  service  to  the  people  and  to  do  this  with  economy 
and  efficiency,  if  the  management  is  made  non-political 
and  placed  in  the  hands  of  competent  men,  who  have  a  long 
tenure  of  office.  During  the  last  30  years  I  have  worked 
for  private  enterprise  and  for  the  State,  and  it  is  my  con- 
viction that  men  will  work  harder  for  the  State  and  in 
the  interests  of  public  welfare,  than  they  will  for  a  cor- 
poration, whose  motive  is  profit.  I  am  quite  sure  that 
there  is  no  corporation  in  this  country  whose  employes 
worked  harder  for  longer  hours  or  took  keener  interest  in 


16 


their  work  than  did  the  officers  of  Victoria  connected  with 
the  management  of  its  rural  credit  system.  If  this  system 
is  made  non-political,  and  if  in  its  working  methods  there 
is  incorporated  the  safeguards  that  have  made  the  Austral- 
ian system  so  continuous  and  so  conspicuous  a  success,  or 
those  incorporated  in  the  British  Columbia  law,  or  outlined 
in  the  report  of  the  Wisconsin  State  Board  of  Public 
Affairs,  there  need  be  no  misgivings  as  to  the  results. 


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